SHRIRAM FINANCE LTD.,CHENNAI vs. PCIT, , CHENNAI

The Assessee raised the following grounds of appeal : “1. The order of the Principal CIT Chennai-3, Chennai u/s 263 in Revision Number DIN & Order No: ITBA/REV/F/REV5/2024-25/1075008779(1) dated 25.03.2025 is against law and facts of the case

Briefly the facts of the case are that the appellant is a Company formed under Companies Act, 1956. It is engaged in the business of Non Banking Finance Company(NBFC). Shriram Finance Limited (SFL) is the re- christened name of Shriram Transport Finance Company Limited (STFC). Shriram City Union Finance Limited (SCUF) and another entity merged with Shriram Transport Finance Company Limited with effect from 1.4.2022. After that the amalgamated company name was changed to Shriram Finance Limited(SFL). The appellant company had filed the Return of Income for the Assessment Year 2020-21 filed on 15.02.2021 disclosing income of Rs.42,06,57,25,360/-. The said return of income was taken up for scrutiny assessment under CASS to verify the following items : Reason for selection of Case  Brought Forward TDS Credit claimed is substantially less than TDS Credit Carried Forward I the returns of preceding Assessment Years.  Foreign Remittance made to persons(s) located in low tax jurisdiction countries (Business ITR).  Claim of large Value Refund.  High ratio of refund to TDS  Expenditure debited to P&L for earning exempt Income is very less in omparison to the Investments made to earn exempt income.  High liabilities as compared to low income/receipts.  Deductees have claimed tax deduction against salary by a TAN in their ITRs, however, corresponding TDS statements are either not filed by the deductor or show a substantially lower figure of tax deducted(Selection of case of deductor). Case Category CASS 4. The assessment was completed by the e-Assessment Unit of the Department (hereinafter called ‘AO’) vide order dated 28.09.2022 at a total income of Rs.43,42,30,36,789/-. While doing so, the Assessing Officer made addition of Rs.1,35,56,30,003/- by disallowing the claim for deduction of Royalty Expenditure paid to Shriram Ownership Trust towards copyrights of Logo. The Assessing Officer also made disallowance of Rs.16,81,426/- u/s.14A of the Act.

Subsequently, the Learned Principal Commissioner of Income Tax, Chennai-3[Ld.Pr.CIT] on verification of the assessment record, formed an opinion that the assessment order passed is erroneous for non-verification of the following items : “2.1 It is seen that the assessee has made a provision of Rs.714,.08 Crores for impairment of loans as per Note-12 Loans of the financials. However, the taxable income was computed by adding back Rs.712.91 crores as against Rs.714.08 crores which has resulted in an understatement of income to the tune of Rs.1.17 crores and consequential short levy of tax

Accordingly, issued a show cause notice u/s.263 of the Act on 11.02.2025 calling upon the appellant to file objection as to why the assessment order should not be treated as erroneous and prejudicial to the interests of the revenue.

In response to the show cause notice, the appellant company filed a detailed explanation vide letter dated 26.02.2025 explaining as to how the assessment order is not erroneous. For the sake of brevity, we are not reproducing the submissions made before the ld.Pr.CIT. However, ld.Pr.CIT on due consideration of the explanation, observed that the Assessing Officer did not cause necessary enquiries which should have been done and therefore, the assessment order is erroneous and prejudicial to the interest of the revenue within the meaning of Clause(A) and Clause(B) of Explanation- 2 to section 263 of the Act, accordingly, set-aside the assessment order to the file of Assessing Officer passed u/s.263 of the Income Tax Act, 1961 vide order dated 25.03.2025 to redo the assessment after making necessary enquiries and after providing an opportunity of hearing to the appellant.

Being aggrieved, the appellant is in appeal before us in the present appeal. The ld.Counsel submits that the assessment order which was subject matter of revision u/s.263 was passed u/s.144B of the Act on 28.09.2022. An order passed u/s.144B is not amenable to the jurisdiction u/s.263 of the Act, as it does not amount to an assessment order passed u/s.143(3) of the Income Tax Act and Explanation(1) to section 263(1) of the Act does not specify an order passed u/s.144B of the Act. He further submits that the assessment order was passed under supervision and control of NFAC headed by Principal Chief Commissioner or Principal Director General of Income Tax and therefore, the Principal Commissioner cannot invoke the powers of revision u/s.263 against 144B orders. He further submits that the assessment order was passed after considering the replies filed by the appellant company pursuant to the series of notices issued u/s.142(1) of the Act, he further submits that the issues sought to be revised by the ld.Pr.CIT were raised in those notices and duly replied by the appellant. The replies filed by the appellant are placed at page no.15 to 136 of the paper book.

On the merits of the issues sought to be revised u/s.263 of the Act, the ld.Counsel submits that the appellant had corrected the error in the quantification of the correct amount deductible u/s.36(1)(vii) in the Income Tax Return for the A.Y.2023-24, therefore, it is a tax neutral transaction, hence, no prejudice caused to the revenue.

On the other hand, ld.CIT-DR submits that assessment order passed u/s.144B is amenable to the jurisdiction u/s.263 of the Act. In this regard, he placed reliance on the decision of Co-ordinate Bench decision in the case of RDC Ventures Vs. PCIT in ITA No.1915/MUM/2023. He further submits that issues sought to be revised by PCIT were never examined by the Assessing Officer. Mere non-examination of the issues renders the assessment order erroneous and also he placed reliance on the decision of Hon’ble Supreme Court in the case of LG Electrification Pvt. Ltd. Vs. PCIT 443 ITR 45(SC). He also submits that an assessment order can be revised in exercising of the power vested with the Commissioner u/s.263 of the Income Tax Act, 1961 based on the Audit Objections. In this regard, he placed reliance on the decision of Punjab & Haryana High Court in the case of PCIT Vs. Kirti Anand [2025] 170 taxmann.com 585 and also the decision of ITAT Indore Bench in the case of Raj Kumar Goyal Vs. Pr.CIT-2 in ITA No.438/IND/2019 vide order dated 20.11.2023.

In rejoinder, the ld.Counsel submits that in the case of RDC Ventures Vs. PCIT, Mumbai Tribunal did not consider the statutory provisions governing faceless assessments.

We heard the rival submissions and perused the material on record. The issue in the present appeal relates to the validity of assumption of jurisdiction u/s.263 by the ld. PCIT.

At the first instance, we shall take up the grounds of appeal in challenging the very jurisdiction u/s.263 of the Act. The appellant has challenged the very assumption of jurisdiction vide Grounds of Appeal Nos.2 to 4 on the ground that the assessment order passed u/s.144B of the Act is not amenable for jurisdiction u/s.263 for the following reasons : i) An order u/s.144B is not one of those orders specified u/s.263 of the Income Tax Act, 1961.

The above contentions cannot be accepted for the reason that order passed u/s.144B is an order passed in exercising of the powers or in the performance of functions of the Assessing Officer assigned to him under the orders or directions issued by the Board which clearly falls under Sub- Clause(ii) of Clause(A) of Explanation(1) of sub-section(1) of the Section 263 of the Income Tax Act.

With regard to the contention of the appellant company that since the Faceless Assessment Order was passed under direction and supervision of Principal Chief Commissioner of Income Tax of Faceless Assessment Unit, the Principal Commissioner of Income Tax who is below the rank of Principal Chief Commissioner of Income Tax, cannot revise the assessment order in exercise of power vested with him u/s.263 of the Income Tax Act, on careful perusal of the provisions of section 144B of the Act, there is nothing to show that the assessment order passed u/s.144B of the Act is passed by Principal Chief Commissioner of Income Tax of Faceless Unit. Therefore, the contention is devoid of any merit, accordingly dismissed.

In the result, Ground No.2, 3, 4A, & 4B filed by assessee stand dismissed.

The Parliament had conferred the power of revision on the Commissioner of Income Tax u/s 263 of the Act in case the assessment order passed is erroneous and prejudicial to the interests of revenue. In order to invoke the power of revision, the above two conditions are required to be satisfied cumulatively. References in this regard can be made to the decision of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT, 243 ITR 83 (SC) and in the case of CIT vs. Max India Ltd., 295 ITR 282 (SC). The error in the assessment order should be one that it is not debatable or plausible view. In a case where the Assessing Officer examined the claim took one of the plausible views, the assessment order cannot be termed as an “erroneous”.

Now, we proceed to examine whether the assessment order passed by the Assessing Officer is erroneous or not!

In the present case, we proceed to examine whether there was any query by the Assessing Officer on those issues which are sought to be revised by the Learned Commissioner of Income Tax u/s.263 of the Income Tax Act. It is contended that during the course of assessment proceedings, the Assessing Officer raised the queries on those issues which are raised by the Learned Principal Commissioner of Income Tax. We had carefully perused the notices issued by Assessing Authority u/s.142(1) of the Income Tax Act and replies filed by the appellant which are placed at page no.15 to 136 of the paper book. However, we find that no query was raised by the Assessing Officer on those issues which are sought to be revised by the Learned Principal Commissioner of Income Tax, thus, the contention that those issues were raised by the Assessing Officer and replies filed by the Assessee were considered by the Assessing Authority is bereft of any evidence and therefore, cannot be accepted. In fact, during the course of hearing of the appeal, the Learnd Counsel fairly conceded that there was no examination by the Assessing Officer on those issues which are sought to be revised u/s.263 of the Income Tax Act. Thus, it is an undisputable fact that there was no examination or queries raised by the Assessing Officer on issues which are subject matter of revisional proceedings u/s.263 of the Income Tax Act.

Further, the we find from the submissions made by the appellant company that obviously, there was mistake in the computation of correct amount of deduction u/s.36(1)(vii) of the Income Tax Act which was rectified in the subsequent assessment year i.e. A.Y.2023-24. It is a salutary principle of law that income should be taxed in the right hands and in the right year. Reference in this regard can be placed on the decision of Hon’ble Supreme Court in the case of ITO Vs. Ch.Atchaiah [1996] 218 ITR 239 wherein it was held as under :

There was no option available to the Assessing Officer but to tax the income in the right year i.e. Assessment Year under consideration. Thus, the Assessing Officer had allowed a claim for deduction u/s.36(1)(vii) of the Act, which is very complex in nature without any examination whatsoever. Admittedly, there was no enquiry by the Assessing Officer on the issues which are sought to be revised by the Learned Pr.CIT. It is evident from the very submissions made by the appellant during the course of proceedings before the Learned Pr.CIT that no enquiry was conducted by the Assessing Officer on the aforementioned issues and the items on which the revision was sought to be made by the Learned Pr.CIT does not call for any interference by us having regard to the facts of the each item. We refer to a decision by the Hon’ble Bombay High Court in the case of CIT Vs. Ballarpur Industries Ltd. (2017) 85 taxmann.com 10 (Bombay) holding that mere taking the view by the Assessing Officer without having subjected the claim to examination would not make it a view of the Assessing Officer. A view has necessarily to be preceded by examination of the claim and opting to choose one of the possible results. In the absence of view being taken, merely because the issue itself was debatable, would not absolve the Assessing Officer of applying his mind to the claim made by the assessee and allowing the claim only on satisfaction after verification/enquiry on his part. A view in the absence of examination is no view but only a chance result. The Hon’ble High Court further went on to hold in para No.16 as under: “16. Therefore, we are of the view that the Assessing Officer cannot abdicate his responsibility of examining the claim for deduction before allowing it. Absence of examination of the claim made by the assessee while passing an assessment order and allowing the claim made, would render the order of the Assessing Officer erroneous coupled with the fact that it is admitting prejudicial to the interest of the revenue, exercise of revisional jurisdiction u/s.263 of the Act by the ld. Commissioner of Income Tax is proper and valid.”

The Hon’ble Bombay High Court in the case of PCIT Vs. Zuari Maroc Phosphates Ltd. [2021] 126 taxmann.com 170 (Bom) held as under : “27. In several decisions, it has been held that it is incumbent on the Assessing Officer to investigate the facts stated in the return when the circumstance would make such an inquiry prudent and when the word “erroneous” in section 263 includes failure to make an inquiry, the order becomes erroneous when such an inquiry had been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. Duggal and Co. v. CIT [1996] 220 ITR 456 (Delhi); CIT v. Pushpa Devi [1987] 164 ITR 639 (Patna) and CIT v. Smt.Pushpa Devi [1988] 173 ITR 445 (Patna).

Even the Jurisdictional High Court in the case of K. A. Ramaswamy Chettiar v. CIT [1996] 220 ITR 657 (Mad), it was held that when an officer is expected to make inquiry of a particular item of income and if he does not make any inquiry as expected, that would be a ground to interfere with the order passed by the officer, since such an order passed by the officer is erroneous and prejudicial to the interests of the Revenue. “12. In the case of Addl CIT v. Mukur Corpn. [1978] 111 ITR 312 (Guj.), it was held that "in the present case it was obvious that the Income-tax Officer had committed an error in not making enquiry into the details as regards both the deductions and also that want of such enquiry had resulted in prejudice to the interests of the revenue. To this extent the initiation of action under section 263 by the Commissioner was quite proper". In Smt. Tara Devi Aggarwal v. CIT[1973] 88 ITR 323 (SC), "where an assessee is assessed on an income voluntarily return, it is not prejudicial to the interests of the revenue only if it is found that the assessment was made on the basis that the income had been earned by the assessee which was assessable. Where an income has not been earned and is not assessable, merely because the assessee wants it to be assessed in his or her hands in order to assess some others he would have been assessed in a larger amount. An assessment so made will be erroneous and prejudicial to the revenue and the Commissioner has jurisdiction under section 33B of the Indian Income-tax Act, 1922 to cancel the assessment and proceedings for assessment may be initiated under the provisions of the Act against some other assessee who, according to the income-tax authorities, would be liable for the income thereof. Therefore, the abovesaid decisions would postulate that when the ITO is expected to make an enquiry of a particular item of income and if he does not make an enquiry as expected, that would be a ground for the Commissioner to interfere with the order passed by the ITO since such an order passed by the ITO is erroneous and prejudicial to the interests of the revenue.”

Thus, from the above, it is clear that the assessment order is erroneous and prejudicial to the interests of the revenue not only for non-examination of issue and patently excess claim u/s.36(1)(vii) of the Act was allowed by the Assessing Officer. Therefore, we do not find any illegality in assumption of jurisdiction u/s.263 of the Act by the Learned Ld.Pr.CIT. We do not find any merit in the ground of appeal no.5 filed by the Assessee, accordingly, Ground of appeal No.5 raised by the assessee is dismissed.

In the result, appeal of the assessee stands dismissed Order pronounced in the open Court on 20th May, 2026.